Utility-scale solar slides to 5 cents per kW, record low

The average price of power generated by utility-scale solar projects hit an all-time low of 5 cents per kilowatt hour last year, according to a report Wednesday from the Lawrence Berkeley National Laboratory.

The report, "Utility-Scale Solar 2014," said the drop put the price within the range of average wholesale electricity prices across the U.S., which was 3 to 6 cents per kilowatt hour, depending on the region.

The price would have been higher without the Solar Investment Tax Credit, which allows investors in solar projects to reduce their federal taxes by an amount equal to 30 percent of their investment, according to the report.

The report was authored by Mark Bolinger and Joachim Seel, who are, respectively, a research scientist and a senior research associate in the Lawrence Berkeley National Laboratory's Electricity Markets and Policy Group.

The researchers determined the average price of power generated by utility-scale solar projects by averaging the rates from a sample of power purchase agreements between utilities and project developers. They defined utility-scale solar projects as ground-mounted solar projects with a generation capacity of at least 5 megawatts.

One reason for the drop in solar power's price is the drop in the cost of building utility-scale solar projects. The report found that projects completed last year had a median up-front cost of $3.10 per watt, less than half the $6.30 median cost per watt of projects finished in 2009. (The cost per watt consists of the amount of 2014 dollars that a solar project can get for each watt of alternating-current power it puts onto the grid.)

Another reason for the drop is that solar projects have gotten more efficient at generating electricity. The report found that projects completed in 2013 performed last year at an average capacity factor of 29.4 percent (in AC terms). The average capacity factors for projects built in 2012 and 2011 were 26.3 percent and 24.5 percent, respectively.

The report attributed the increase in capacity factor to the fact that newer projects generally are better located than their predecessors; are more likely than their predecessors to have their solar panels track the sun; and are more likely than their predecessors to have oversized collector fields.

When solar panels were more expensive, Bolinger said, developers would design projects so that, at solar noon, they would be generating the maximum amount of direct-current power that their inverters could convert into AC and move onto the grid. Now, with the price of solar panels having decreased faster than the price of inverters, developers are building projects that are capable of producing more DC power at solar noon than their inverters can put onto the grid. While that means some of the projects' generating capacity is wasted at solar noon, it also means they can generate more power at other times, enabling them to generate more power overall and making their power generation more constant.

The report also found that the declining cost of solar power is leading to the development of solar projects in regions outside California and the Southwest, such as Texas, which has a lot of wind power, and Alabama and Arkansas, which haven't had much renewable power development.

The declining cost of solar power also resulted in there being projects with nearly 45,000 megawatts of capacity - more than five times the installed solar capacity - in the interconnection request queues of the country's independent system and regional transmission operators at the end of last year, according to the report.

While not all the projects will reach fruition, the report concluded that the developers of the ones that get started would try to complete them by 2017, when the Solar Investment Tax Credit for solar projects on commercial property is scheduled to drop to 10 percent.

That, the report said, could result in "a frenzied pace of construction over the next 15 months," although the solar industry is trying to get the credit renewed.

If the credit expires, "that will set solar back a little bit," Bolinger said, "but I think by most accounts everyone pretty much expects the price of solar to keep falling over the next five to 10 to 20 years. There's just no reason costs shouldn't keep coming down given how much of a commodity the modules are and how many opportunities there are for `learning by doing' here."

It was the third such annual report produced by the laboratory, which belongs to the national laboratory system supported by the Department of Energy's Office of Science and is located in Berkeley, Calif., where it is managed by the University of California. The report was funded by the SunShot Initiative, which is run by the DOE's Office of Energy Efficiency and Renewable Energy.